Silicon Valley commercial real estate boom driven by tech

By George AvalosOakland Tribune

Posted:
08/18/2013 12:00:00 PM PDT

Updated:
08/18/2013 05:03:37 PM PDT

Click photo to enlarge

Workers build the exterior walls at the Trimble Research Park construction site in San Jose, Calif. on Thursday, Aug. 8, 2013. The tech boom is far from over in the South Bay and the Peninsula. Developers are currently building five to six million square feet of new office space in Silicon Valley. (Gary Reyes/Bay Area News Group)

SAN JOSE -- A commercial real estate boom is underway in Santa Clara County and south San Mateo County, with developers constructing or renovating roughly 6 million square feet of office space -- double the activity of a year ago.

Most of the new space won't be empty long. More than one-third of the office and research space under development already has been gobbled up by tech firms eager to expand.

"We are starting to see some very tight office markets in Santa Clara County," said Andy Poppink, managing director for the Silicon Valley office of commercial realty brokerage Jones Lang LaSalle.

Workers build the exterior walls at the Trimble Research Park construction site in San Jose, Calif. on Thursday, Aug. 8, 2013. The tech boom is far from over in the South Bay and the Peninsula. Developers are currently building five to six million square feet of new office space in Silicon Valley. (Gary Reyes/Bay Area News Group)
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Gary Reyes
)

About 6.2 million square feet -- enough room for 31,000 workers -- is under construction in Santa Clara County and Menlo Park, Jones Lang LaSalle estimated. Colliers International's regional research manager, Jennifer Vaux, based on Colliers' construction pipeline and broker estimates, puts the figure even higher: about 6.5 million square feet.

"It's mainly access to talent," said Tim Bajarin, principal analyst with Campbell-based Creative Strategies. "Silicon Valley has the richest pool of young tech talent in the world."

Some 4.9 million square feet, or 79 percent, of the current building activity consists of new office space, Jones Lang LaSalle estimated. The rest, about 1.3 million square feet, involves a major renovation of existing buildings. The figures include a 500,000-square-foot complex in Mountain View leased this month to Google and the 434,000-square-foot Facebook West Campus in Menlo Park.

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"Social networking, Internet and cloud technology companies are the primary drivers of the growth," said Phil Mahoney, an executive vice president with realty firm Cornish & Carey.

Tenants have already agreed to lease 39 percent of the 5.7 million square feet, even before it's complete, Jones Lang calculated.

Google, LinkedIn, Facebook, Amazon, Apple (AAPL), Samsung and Dell are in the pack of companies hunting for space, Mahoney said.

A work crew installs a steel beam at the Trimble Research Park construction site in San Jose, Calif. on Thursday, Aug. 8, 2013. The tech boom is far from over in the South Bay and the Peninsula. Developers are currently building five to six million square feet of new office space in Silicon Valley. (Gary Reyes/Bay Area News Group)
(
Gary Reyes
)

"We see a lot of optimism about growth on the part of the biggest tech companies and a lot of smaller ones," said Chad Leiker, a vice president with Kidder Mathews, a realty firm.

The roughly 6 million square feet under construction or being refurbished in Santa Clara County and Menlo Park is more than twice the 2.65 million square feet that was being developed in the same area in the middle of last year. And in mid-2011, only about 500,000 square feet was under construction, according to Amber Schiada, director of Bay Area research for Jones Lang LaSalle.

Geographically, the commercial real estate boom has pushed from north to south. A slew of leases and property purchases by Apple, Facebook and Google have gobbled up available space in Cupertino, Mountain View and Menlo Park, causing a leasing surge in Sunnyvale, Santa Clara and, now, San Jose.

But not every Bay Area commercial real estate market is booming. The East Bay has virtually no developer-launched construction, Schiada said.

In addition to building new space, developers are spending tens of millions of dollars to renovate existing buildings, giving decades-old properties a fresh start. The face-lifts are necessary because tech firms want attractive offices to help them recruit top-flight engineers being wooed by multiple tech companies.

"Developers who don't renovate their older buildings will be left standing on the curb," said Jim Beeger, a Colliers senior vice president.

Some realty firms have torn down entire buildings to construct brand-new offices. In Sunnyvale, developers bulldozed several buildings, including offices and a hotel, to clear the way for a state-of-the-art LinkedIn campus totaling 587,000 square feet, typically enough for about 2,600 workers.

Other developers, including Bixby Land, are renovating existing buildings to create campuses. In April, Nimble Storage leased a three-building San Jose campus created by a $10 million Bixby renovation. And Bixby has just launched a renovation of a three-building project in north San Jose that will offer a sleek look for tech tenants. The developer added modern exteriors and interiors, along with a large common area featuring an olive grove and fire pits.

"We want to create a unique environment that most employers in Silicon Valley want," said William Halford, Bixby's president.

Contact George Avalos at 408-859-5167 or 408-373-3556. Follow him at Twitter.com/georgeavalos.